A new California law, Assembly Bill 2257 (“AB 2257”) became effective on September 4, 2020, AB 2257 modifies an earlier Assembly Bill 5 (“AB 5”), which codifies a strict ABC test for determining whether California workers should be classified as employees or independent contractors and had a huge impact on numerous industries. Under the ABC test, hiring entities are required to classify workers as employees unless they meet all conditions of the ABC test: (A) the worker is free from control and direction of the hiring entity in connection with performing the work, both under contract and in fact, (B) the worker performs work outside the usual course of the hiring entity’s business, and (C) the worker customarily engages in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. AB 2257, while preserves the ABC test for independent contractor classification, now greatly expands the scope of exemptions from the ABC test.
A few professions are exempted from the ABC test under AB 5, including doctors (physicians, surgeons, dentists), lawyers, architects, engineers, insurance agents, accountants, real estate agents, and hairstylists. These professions could use Borello test to determine whether an individual is an employee or an independent contractor. The Borello test has 11 factors, primarily focusing on whether a company has control over the means and manner of the work, and additional factors such as who provide the tools for work and the worker’s opportunity for profit or loss depending on his or her own managerial skill.
Same as the professions that are exempted under AB 5, the new exemptions under AB 2257 allow certain professions to use Borello test in employment classification and altered some existing exemptions in significant ways. Subject to certain licensing and other requirements, below is a summary of these impacted or newly-added exemptions:
• Business-To-Business Exemption: AB 2257 maintains the exemption for bona fide business-to-business contracting relationships. The exemption now also applies where a “public agency or quasi-public corporation” has retained a contractor;
• “Single-Engagement” Business-to-Business Exemption: AB 2257 creates an exemption from the ABC Test for individual businessperson who contracts with one another “for purpose of providing service at the location of a single engagement event”;
• Referral Agency Exemption: This exemption may apply to the relationship between an individual operating as a sole proprietor or a business entity and a business that refers that individual’s service to client, such as consulting, youth sports coaching, caddying, wedding or event planning, and interpreting service;
• Professional Services Exemption: content contributors, advisors, narrators or cartographers for certain publications (provided that they do not displace existing employees), special performers hired to teach a class for no more than a week, appraisers, registered professional foresters, home inspectors, freelance translators, producers, copy editors, and illustrators;
• Music Industry & Performer Exemptions: recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers, musicians engaged in creating sound recordings, vocalists, photographers working on album covers, and other press and publicity photos relating to recordings, and independent radio promoters, musicians or musical groups for the purpose of a single-engagement live performance event, and individual performance artists;
• Miscellaneous Exemptions: Licensed persons who provide underwriting inspections, premium audits, risk management or loss-control work for the insurance industry; persons engaged in conducting international and cultural exchange visitor programs; competition judges with specialized skill sets; other miscellaneous exemptions.